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Trade and Institutions: Evidence from Regional Studies

Author

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  • Ojeaga, Paul
  • Ogundipe, Adeyemi

Abstract

This paper studies the relationship between trade and institutions in regions for the period 1980 to 2010 using the generalized method of moments estimation technique and other instrumental variable estimation technique such as two stage least square and two stage generalized least square in order to ensure validity of our GMM estimates. The study finds that, consistent with past literature, institutions do have a significant effect on trade. Different measures that capture domestic and international institutions were used. It was found that domestic institutions had a more significant effect on trade than international institutions. Domestic institutions were also found to be more inward looking and protectionist in nature and were probably increasing average tariffs in order to protect domestic trade, while international institutions were probably more concerned about regional integration, tariff reduction and trade facilitation in general. Using different measures of economic policy, we find from our results that institutions that affect trade do not differ significantly from one another. The effectiveness of domestic institutions in promoting trade was examined through interacting domestic institutions with access to local and foreign markets (market access), market potential (market size) as well as regional average tariffs, the result was that domestic institutions increase cost of international trade through increasing tariffs but decrease transportation to markets and were not developing regional specific market potential, the results for international institutions were a reduction of all three factors i.e. tariffs, cost of transportation to market and market size.

Suggested Citation

  • Ojeaga, Paul & Ogundipe, Adeyemi, 2013. "Trade and Institutions: Evidence from Regional Studies," MPRA Paper 50628, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50628
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    File URL: https://mpra.ub.uni-muenchen.de/50628/1/MPRA_paper_50628.pdf
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    References listed on IDEAS

    as
    1. Araujo, Luis & Mion, Giordano & Ornelas, Emanuel, 2016. "Institutions and export dynamics," Journal of International Economics, Elsevier, vol. 98(C), pages 2-20.
    2. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    3. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
    4. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    5. Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999. "Infrastructure, transport costs and trade," Journal of International Economics, Elsevier, vol. 47(1), pages 169-189, February.
    6. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    7. Craig A. Depken, II & Robert J. Sonora, 2005. "Asymmetric Effects of Economic Freedom on International Trade Flows," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 4(2), pages 141-155, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exports; international trade; institutions; market size and transaction cost;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F1 - International Economics - - Trade
    • N2 - Economic History - - Financial Markets and Institutions

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